Commodity currencies and confidence

Rand Fall
For centuries villagers around Britain have exhibited their garden produce at an annual show. The one in Quedgeley this year was rather different. Contestants were allowed to enter fruit and veg purchased from supermarkets. The first prize went to a bowl of kumquats from Waitrose: it was R 100.

Five years ago that would have been worth £10: at the current exchange rate it is worth just a fiver. The South African rand took another downturn on Friday, falling 1% to a fresh all-time low. The move appeared to be a delayed reaction to continued weakness for gold and commodity prices and a belief that the South African Reserve Bank's rate increase the previous day was too little too late.

The rand was by far the day's fastest mover among the world's dozen most actively-traded currencies. The next-biggest loss was a half-cent for the Australian dollar. Top spot was shared by the Japanese yen and the euro, which added 0.2% against sterling; a quarter of a euro cent and half a yen. The US and NZ dollars, the Swiss franc and the northern Scandinavian crowns were just about unchanged against the pound.

Unimpressive PMIs
Friday's round of provisional sector purchasing managers' index readings produced some uninspiring figures. The only one to exceed investors' expectations was from the States, which was two ticks higher on the month at 53.8.

None of the euro zone readings was an improvement on the previous month and every one of them fell short of analysts' forecasts. France's manufacturing PMI fell back into the contraction zone below 50 after being positive in only three of the last 48 months. 

In Britain BBA mortgage approvals for June were higher on the month. The BBA statement noted that "the housing market is beginning to hot up again" and that there had been an increase in the number of people remortgaging to pre-empt higher UK interest rates. US new home sales showed a disappointing 6.8% monthly decline but did not hurt the dollar.

The theme today will be confidence. It has evaporated again in Shanghai, where the stock index is 8.5% lower on the day, and the Bloomberg commodity index has touched a new 13-year low. 

This morning IFO publishes its measures of German business confidence. All three are forecast to be lower on the month. Also out before lunch should be the CBI's Industrial Trends Survey, which looks at UK manufacturers' order books. This afternoon's important figures are for US durable goods orders. They have recently been given more than the usual attention by investors, who are conscious that the Federal Reserve is also watching them closely.

In theory, the decline in commodity prices has been going on long enough to be priced into financial markets and currencies. By the same token, the volatility of the Shanghai stock market ought to be well-known. However, the commodity-related currencies could come under pressure today, as European equity prices already have.